Download Bill to strengthen regulation of short selling (15.12.99)

Press Release
Bill to strengthen regulation of short selling
Wednesday, December 15, 1999
A bill which seeks to amend the Securities Ordinance (Cap.333) to
strengthen the regulation of short selling and to increase penalties for
"uncovered" short selling was approved by the Executive Council for
introduction into the Legislative Council.
The Securities (Amendment) Bill 1999 to be gazetted this Friday
(December 17) will put unreported short sales on a par with "uncovered" short
sales in order to maintain effective regulation and uphold market discipline. It
also seeks to increase penalties against "uncovered" short selling to strengthen
the deterrent effect.
Other amendments will include extension of the rule making powers of
the Securities and Futures Commission to enable the Commission to make rules
to require short sellers to disclose to their brokers when they close out their
outstanding short positions by purchases at or through the Stock Exchange and
to impose record-keeping requirements on the stock lenders in Hong Kong.
The Secretary for Financial Services, Mr Rafael Hui, said today
(Wednesday): "Short selling is a common practice in many major overseas
stock markets and an integral part of a well-developed stock market. It adds
liquidity to the market and can balance the inflationary effect of securities
margin trading, thus contributing to price stability. However, without
regulation, short selling can be subject to abuse by market manipulators and
detrimental to the market."
"While recognizing the market functions of short selling, we believe it is
equally important to have in place proper regulation of such activities.
Uncovered short selling is already a criminal offence under the law. The
present proposals will further strengthen the reporting and disclosure regime for
covered short selling and help ensure the fairness and transparency of such
activities and the market efficiency they provide."
"The legislative proposal is also part of the 30-point Programme
announced by the Financial Secretary in early September 1998 with a view to
further strengthening the discipline and transparency of the securities market,"
Mr Hui said.
The first and second reading of the Bill is expected to take place at the
sitting of the Legislative Council on January 5, 2000.